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Australian Central Bank Holds Cash Rate at 4.35%, Australian Dollar Edges Higher

In its first decision of 2024, the Reserve Bank of Australia (RBA) maintained the cash rate at 4.35% following the latest meeting of the Bank’s Board. The Australian dollar edged higher after the announcement.

The RBA decision, which kept rates unchanged for a second straight time, was widely expected.

RBA Says Inflation is Falling but Remains Too High 

The RBA statement acknowledged that inflation is falling but expressed concern that it still remains high, noting that “the board expects that it will be some time before inflation is sustainably in the target range”. The RBA projected that inflation would return to the target range of 2 to 3 percent in 2025 and to the midpoint of that range in 2026.

Australia’s inflation fell to 4.1% year-to-year in December, down from 4.3% year-to-year in November. Inflation continues to move in the right direction, but remains well above the target range and is still too high for the RBA to consider lowering interest rates.

In the RBA statement, members expressed concern about the uncertainty over the Chinese economy and conflicts in Ukraine and the Middle East. Domestically, there was also concern about the lag in the effect of monetary policy and household consumption.

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    Significantly, members pushed back against rate cut expectations, saying in the statement that “a further increase in interest rates cannot be ruled out”. This was a clear signal that the RBA remains hawkish even though inflation has been on the decline.

    Governor Bullock used her press conference to stress that her number one priority was lowering inflation. Bullock said she understood that mortgage holders were anxiously looking for a rate cut, but inflation had to come down first and this required the RBA to continue its restrictive rate policy.

    What can we expect from the RBA moving forward? The central bank is unlikely to lower rates before the second half of 2024, which should mean additional pauses until policymakers feel comfortable cutting rates. A rate hike is very unlikely unless inflation suddenly reverses directions and moves significantly higher.

    Australian Dollar Slightly Higher, Stock Market Dips Lower 

    In the Forex market, the AUD/USD currency pair showed limited movement after the RBA decision, rising 0.20%. At the time of writing, the Australian dollar is trading at 0.6493.

    The equity markets were lower following the RBA decision. The S&P ASX 200 stock market index closed on Tuesday at 7,581.60, down 44.3 points (-0.58%).

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    Kenny Fisher
    About Kenny Fisher
    Kenny started his career in forex working in the sales and marketing department at a major forex broker and has worked as a market analyst for 12 years. With a legal editing background, Kenny has combined his writing skills and finance expertise to produce top-quality articles. Kenny covers a wide range of topics, including global stock markets, commodities and currencies, with focus on fundamental and macro-economic analysis. Kenny’s articles have been carried by Oanda,, Seeking Alpha and FXStreet. Kenny holds a Bachelor of Law from Ogoode Hall Law School in Toronto, Canada.

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